Strategic Sectors laws discourage foreign energy players

Some of the world's biggest oil firms have complained that a Russian law controlling foreign investors could scare them off. At a forum of the Russo-British Chamber of Commerce, BP and Shell said they can work with the Strategic Sectors law, but only if

Six months after the government made foreign investors pass a review panel before they could access 42 sectors of the economy, just 2 deals have been approved. Analysts say the list of “strategically sensitive” sectors, which includes oil, gas, mining and telecoms, is too long.

Europe's largest oil company warns there's no sense investing in Russia if they risk being denied a licence to develop their finds, according to Chris Finlayson, Head of Shell Russia.

“There is a particular issue about when a foreign company participates in the exploration phase, and then a field may be declared one of federal security. The issue is, that it is not adequately defined, and the risk is of them putting money in, then not being allowed to participate in the development phase.”

Foreigners are further blocked by Russia's subsoil law, which stops them controlling the country's oil and gas fields altogether, according to Richard Spies, President of BP Russia.

“There was a very wide exemption made for companies controlled by Russian Federal Government, that effectively told investors like us that if we worked with those companies as partners we wouldn't have a problem with that, but those same exemption were not put into the subsoil law.”

Roger Munnings, Chairman of KPMG CIS says the strategic sectors law could be useful for foreign investors, if it's made clear when the state will and won't step in.

“Clarity surrounding that area is very important for Russia and foreigners. Now the reality is how it works in actuality.”

The trouble is most of Russia's remaining oil is in arctic and deepwater conditions for which only Western majors have the technology. As a result, after a decade of growth, Russian oil production this year is falling.